China's Securities Market (a Shares) Of Ipos Pricing Efficiency Study

Improving the efficiency of market for new issues and optimizing the distribution of capital have been the policies of innovation and development in China's Market for New Issues for a long time. This paper is concerned with the explaination of Initial Public Offerings (IPOs) underpricing in China's stock market(A-share). As we know, there are several peculiarities of the new-issue and offering process in China compared with other mature stock markets. So in this study, based on some theories on IPOs underpricing in other mature stock markets, the author combines the typical characteristics in China's stock market and empirically identifies some of the causes of underpricing of IPOs in China's stock market (for A-share) using data compiling for 187 firm-commitment A-share IPOs.Firstly the author formulates and estimates a benchmark empirical model that relates IPOs initial returns to variables related to IPOs underpricing. The result shows that IPOs underpricing is the largest in China's stock market than any other stock markets, both the mature markets and the developing markets. IPOs underpricing is an equilibrium outcome under asymmetric information among issuers and investors in China's new issue market. Then the author expands the benchmark model to consider three hypotheses that may help explain the high A-share IPOs underpricing in China. In particular, the author comes to conclusions that (1) the extraodinarily large IPOs underpricing is at least partial due to a relatively small aggregate supply of shares; (2) pricing and lottery mechanism in share allocation contributes to A-share IPOs underpricing; (3) different share types that have been introduced by government in transferring part of the ownership of state-owned erterprises to the public, leads to the fact that the primary purpose for Chinese firms going public is to raise capital, not to transfer ownership from state to private investors, which may reduce the efficiency of new issue market in China.Finally, based on the conclusions of the empirical study, the author provides some advice aimed at lowering the IPOs underpricing and improving the efficiency of new issue market in China.